You already know that solar power systems have a much better payback time and that the price of solar panels is always going down. You know you’re going to add value to your home and secure your family, so what’s holding you back? Sticker shock? Perhaps you need to figure out what the cost will be after you access the various federal, state, and municipal incentives available to you?

Let’s take a look at how to figure that out.

Find the Incentives

Most people save this step for last when calculating the cost of a solar power system. Don’t.

Now, that doesn’t mean that you can take 30% off the cost of your solar energy system. According to the Solar Energy Industries Association, it’s, “…a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government.” The U.S. Department of Energy says, “If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year.”

Your $25,000 system is now down to $17,500. Not bad. But keep in mind, the percentage value drops from 30% to 25% after 2019, and then down to 22% after 2020. Yet another reason to do this sooner than later.

That equation looks like 6,000 w X $0.513/w = $3,078. Let’s call it $3,000 for easier math. Your $25,000 system that became a $17,500 system is now down to a $14,500 system. Sweet. You’ve knocked off $10,000.

That’s a good amount of money for anyone. But you might not want to leap at it either. These credits are a commodity, after all. You may want to do some more research on these RECs as they might be worth more than that in the long run. Just something to think about.

Let’s say you take the $2,700. Now your system is down to $11,800. Cha-ching!

So what does that mean? Well, that might take some figuring out. Let’s say your tax assessment is currently $100,000. Then you install your solar PV system and your tax assessment goes up to $110,000. The increase in assessed value due to the system is $10,000, right?

The average property tax rate in New York state is 1.5% of your property’s assessed value, according to the SmartAsset.com property tax calculator. Since that $10,000 won’t be part of the assessment, you won’t have to pay the extra $150 a year in property taxes for it. You get that by multiplying $10,000 by 0.015. $150 isn’t much, but every dollar saved is three dollars earned, right? Plus, this benefit lasts for 15 years. Assuming your property assessment never changes, that’s $2,250 in taxes you don’t have to pay. Your system is down to $9,950, but it will take a while to get that $2,250 of value back.

This may not seem like the best incentive, but it’s better than none, especially considering that solar power systems are adding considerable resale value to homes now. It used to be that solar power systems were considered to be a liability when selling your home, but the environmental consciousness shift has changed that. According to the Berkeley Lab report, Exploring California PV Home Premiums, people are willing to pay about $15,000 more for a home with solar power over a comparable home without it. Expect that valuation to continue to go up.

Personal Income Tax Credit

Similar to the federal income tax credit, some states will offer an income tax credit too. Oregon’s Residential Energy Tax Credit (RETC) program could net you a $1,500 tax credit per year, for up to five years. The total credit is calculated by multiplying a watt output of your system by $1.50. You can only claim $1,500 of that every year for five years or until the amount is used up; whichever comes first.

Your system is 6,000 Watts, so that’s a $9,000 tax credit. But as you know, 5 years times $1,500 is $7,500. That’s the max tax credit you’ll get in this deal. That’s still a lot of cheese, as the kids would say. Your system is now down to $2,450. Okay, not really, because you’re not likely to get ALL of these incentives, but the point is becoming clear, right?

Feed-in Tariffs and Net Metering

You might be wondering how much feed-in tariffs (FiTs) and net metering will reduce your costs. Unfortunately, it won’t have much effect, if any, on defraying the cost of your system. The best case scenario is that it eliminates your power bill, but it’s likely that you’ll still be paying $30 or $40 a month to stay connected to the grid. Several of these programs also require that you contract to the benefit provider for an extended period of time. It could be as long as 20 years. And you also hand over your RECs for many of these programs.

It also seems that the feed in tariff incentive is dying off. So don’t count on these incentives too much. In other countries, like Canada and Australia, these FiT and net metering tariffs are more likely to be a net benefit.

After a year off-the-grid, you won’t even know how much power costs. But you can be sure it’s going to be more than you’re paying now. Between 1960 and 2010, the cost per kWh for electricity rose from about 2.3 cents to just shy of 12 cents. You’re probably paying somewhere around 15 cents/kWh right now, or more. $10,000 buys you a ticket out of that – forever.

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Anonymous

June 28, 2016 at 5:38 pm

When figuring out the costs of solar, you might want to read "Shedding Light on Solar Power" in the August, 2016 issue of Consumer Reports. It seems electric utilities are getting state regulators to allow them to add fixed fees to the electric bills. These fees are meant to discourage solar owners from selling their excess electricity to the utilities.

It seems that certain states (California, Arizona, Nevada, etc.), on the one hand, are giving tax breaks to those that install solar but on the other they are making these people pay more for utility-provided electricity that they do use.

Just first ignore any cost/benefit you mentioned, what if you have to leave for another place due to job change or whatever the reason? You can't take this with you. Do you really think you can charge additional 10g to the new buyer because you invested that much money?

So let's be honest, if you can't recoup the cost within 5 years, you might as well forget about it. What do they say when you buy a house: if you are pretty you will be at the same location for 5 years or more then buy a house. For the solar panel system, same rule applies.

" “…a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government.”"
And that is the fly in the ointment for those that get a refund even without applying the renewable energy tax credit. Even though they may be entitled to it, they can never make use of it.

With 20+ years of experience in IT, training, and technical trades, it is my desire to share what I've learned with anyone else willing to learn. I strive to do the best job possible in the best manner possible, and with a little humour.